A 20% down payment is a nice goal and a terrible requirement. Most loan programs don’t demand it. The bigger problem is cash. That’s why mortgage lenders with down payment assistance matter: they connect you to money that covers part or all of the down payment, often through a second mortgage, grant, or state-backed program.
Down Payment Assistance Is a Funding Source, Not a Loan Type
Down payment assistance doesn’t replace your first mortgage. It fills a cash gap. The first mortgage might be FHA, conventional, USDA, or VA. The assistance is a separate piece, usually a second lien or a grant recorded against the property. Some lenders fund it themselves. Many don’t. They simply accept DPA from an approved provider.
That distinction matters when you shop. A lender may advertise ‘down payment assistance’ while actually connecting you to a state program. Another lender might have its own grant with stricter income limits. Ask who funds the money and who services the second lien.
The Main Types of Down Payment Assistance
- Grants: Money you don’t repay if you meet occupancy and program rules. Grants are the cleanest form of help, but they usually have income limits and may require you to stay in the home for three to five years.
- Forgivable loans: A second mortgage forgiven over time, often five to ten years. Sell or refinance early and you repay a prorated share.
- Deferred second mortgages: A silent lien with no monthly payment. It comes due when you sell, refinance, or pay off the first mortgage. Some charge 0% interest; others accrue simple interest.
- Matched savings or lease-purchase help: Some nonprofits match your savings or credit rent toward a down payment. Less common, but worth asking about.
Each structure changes your risk. A grant is the cleanest. A deferred second with a balloon or accrued interest can surprise you later.
Mortgage Lenders With Down Payment Assistance: Where to Look
Start with three groups: large lenders with their own grant programs, state housing finance agencies, and local credit unions or community banks.
Bank of America has offered down payment grants up to $10,000 in many markets and up to $17,500 in select higher-cost areas. Chase’s Homebuyer Grant has provided up to $7,500 in eligible neighborhoods. Wells Fargo’s Homebuyer Access grant has offered $5,000 in select communities. These programs change often, so verify current amounts, income caps, and eligible ZIP codes before you apply.
State housing finance agencies are often the deepest source. CalHFA’s MyHome Assistance Program offers a deferred second loan for part of the down payment. The Texas State Affordable Housing Corporation runs down payment grants and second liens. Florida Housing pairs bond financing with down payment assistance. Most states have something similar, and the assistance usually comes through an approved lender list.
Credit unions and community banks can be flexible with portfolio loans. A local institution may offer a second mortgage with no origination fee or a grant for buyers in a specific county. Small banks often don’t advertise these programs well.
Nonprofits and Housing Counselors
HUD-approved housing counselors can point you to local DPA programs you won’t find on a lender’s website. NeighborWorks organizations and community development financial institutions (CDFIs) sometimes provide grants or low-interest seconds. These groups can also explain homebuyer education requirements, which many DPA programs impose.
Matching Down Payment Assistance to Your Loan Type
The first mortgage determines how much assistance you can use and what rules apply.
FHA Loans
FHA allows 3.5% down and permits down payment assistance from government agencies, nonprofits, and family members. That makes FHA a common pairing with DPA. If you’re comparing 3.5 percent down mortgage lenders, ask each one whether it accepts the specific DPA program you’re considering. Some lenders have overlays that restrict certain second liens.
Conventional Loans
Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs allow 3% down for eligible buyers. DPA can cover that 3%, but the first lender must approve the second lien. Low down payment mortgage lenders that write 3% conventional loans may also have their own grant programs. Income limits apply, often tied to area median income.
VA and USDA Loans
VA loans and USDA loans already allow 0% down for eligible buyers, so down payment assistance is less about the down payment and more about closing costs. Some DPA programs can cover closing costs or prepaid items. If you’re exploring no down payment mortgage lenders, compare the total cash needed at closing, not just the down payment.
Zero-Down Programs
True zero-down loans exist, but they aren’t all equal. Some are VA or USDA loans. Others are lender-specific programs with higher rates or recapture provisions. Read zero down mortgage lenders carefully before you assume the down payment is the only cost you’re avoiding.
What Down Payment Assistance Really Costs
Assistance is not always free money. A grant might be free if you stay in the home for a set period. A forgivable loan might be forgiven over five years, 20% at a time. A deferred second might accrue interest silently. A lender-funded grant might come with a higher interest rate on the first mortgage.
Run the numbers on a $275,000 home. A 3.5% FHA down payment is $9,625. If a nonprofit covers that with a five-year forgivable second, you owe nothing upfront. Sell in year two, and you might repay 60% of the balance, or $5,775. If the same $9,625 is a 30-year second at 5%, the payment is about $52 a month.
Rate matters too. A quarter-point bump on a $250,000 first mortgage adds roughly $41 a month. Over seven years, that’s about $3,444. A ‘free’ grant can cost more than a low-interest second if the lender raises your rate to pay for it.
Income Limits and Recapture Taxes
Most DPA programs have income limits, purchase price limits, and first-time buyer definitions. ‘First-time buyer’ often means you haven’t owned a home in the past three years, not that you’ve never owned one. Some bond-backed programs carry a federal recapture tax if you sell within nine years and your income rises above a threshold.
How to Find a Lender That Offers DPA Without Getting Burned
Use a deliberate search instead of responding to the first ad you see.
- Start with your state housing finance agency’s approved lender list.
- Call two or three HUD-approved housing counselors and ask which local programs are active.
- Ask each lender whether the assistance is a grant, forgivable loan, or deferred second.
- Get a Loan Estimate that shows the first mortgage and the second lien together.
- Confirm the DPA provider and the first lender have worked together before.
Specific questions cut through marketing:
- What is the interest rate and term on the second lien?
- When does repayment start, and is it prorated?
- Are there income, purchase price, or location limits?
- Does the program require a homebuyer education course?
- Can I refinance or sell without a penalty?
Red Flags in Down Payment Assistance Marketing
‘Free down payment’ usually means a lien. ‘Everyone qualifies’ means nobody has read the guidelines. A nonprofit that charges a large upfront fee before you’ve been approved deserves scrutiny. So does a lender that won’t put the second lien terms in writing.
Watch for occupancy rules. Most DPA requires you to live in the home as your primary residence. Rent it out too soon and the loan may come due. Watch for refinance restrictions, too. Some second liens must be paid off before you can refinance the first, which can trap you in a higher rate if home values fall.
A Practical Way to Shop for DPA Lenders
Build your budget around the second lien, not just the first mortgage. Get quotes from at least three lenders: one large bank with a grant program, one credit union or community bank, and one lender on your state housing agency’s list. Compare the first mortgage rate, the second lien terms, total closing costs, and the cash you need at closing.
If the DPA is a grant, ask what happens if you sell in three years. If it’s a forgivable loan, ask for the forgiveness schedule in writing. If it’s a deferred second, ask whether interest accrues and whether the balance can be subordinated if you refinance. The right lender will answer these questions without pressure. The wrong one will push you toward a rate that pays for the ‘help.’